The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount of coal each year from Wyoming to Illinois. Under the terms of the agreement, WRC will receive $4,200,000 now in exchange for its hauling services valued at $360,000 at the end-of-year one (EOY 1), $375,000 at EOY 2 and continuing to grow by $15,000 per year through EOY 100. If the WRC's cost of capital is 12% per year, is this a profitable agreement for WRC? Present Value of a growing annuity - (1 − 1(1 + g)¯n\ PV = C
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- The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount, $39,000 will be returned to the Spartan Technology Company after six years. The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) Net present value b. Should…The Spartan Technology Company has a proposed contract with the Digital Systems Company of Michigan. The initial investment in land and equipment will be $320,000. Of this amount, $260,000 is subject to five-year MACRS depreciation. The balance is in nondepreciable property. The contract covers six years; at the end of six years, the nondepreciable assets will be sold for $60,000. The depreciated assets will have zero resale value. Use Table 12-12. The contract will require an additional investment of $59,000 in working capital at the beginning of the first year and, of this amount, $39,000 will be returned to the Spartan Technology Company after six years. The investment will produce $91,000 in income before depreciation and taxes for each of the six years. The corporation is in a 25 percent tax bracket and has a 8 percent cost of capital. a. Calculate the net present value. (Do not round intermediate calculations and round your answer to 2 decimal places.) X Answer is complete but…ZEN Ltd signs a contract on 30 June 2019, agreeing to build a bridge for XYN at a contract price of $20 million. XYN will be in control of the asset throughout the construction process. ZEN estimates that construction costs will be as follows: Year Ending 30th June 2020 Cost $ 5,000,000 $ 8,000,000 $ 3,000,000 $16,000,000 30th June 2021 30th June 2022 Total The contract provides that XYN will make payments on 30 June of each year as follows: $ 4,000,000 $ 10,000,000 $ 6,000,000 $20,000,000 2020 2021 2022 Total The contract is completed as expected on 30 June 2022. Assume that actual costs and cash collections with expectations and that cost (an input measure) is used as the basis for assessing progress on the car contract. Required: (a) Calculate the income and gross profit recognised each year 2020, 2021, 2022. (b) Prepare the journal entries for the year ended 30th June 2020.
- A company is analyzing the acquisition of a concession. The government provides it for 6 years for an initial investment of $50,000,000 and the export equipment will cost another $50,000,000 (which is acquired in the initial period of the project), with the commitment that in year 8 it will reforest for $250,000,000. The annual income (from year 1 to 6) is $50,000,000. The IOT (Internal rate of opportunity) is 20% per year. The IRR (A.I.R.), which is greater than 10%, of this project, is:The Western Railway Company (WRC) has been offered a 100-year contract to haul a fixed amount of coal each year fromWyoming to Illinois. Under the terms of the agreement, WRC will receive $4,200,000 now in exchange for its hauling services valued at $360,000 at the end of year (EOY) one, $375,000 at EOY 2 and continuing to grow by $15,000 per year through EOY 100. If WRC’s cost of capital is 12% per year, is this a profitable agreement for WRC?B Company is recognizing income from long-term construction contracts. In 2020, B entered into a fixed contract to construct a fly-over connecting Luzon and Mindanao for P65,000,000. Estimated costs and contract costs incurred up to 2023 were as follows: Year Cost incurred Estimated cost at completion Progress billings 15,000,000 6,000,000 25,000,000 19,000,000 2020 15,000,000 60,000,000 62,000,000 66,000,000 63,000,000 2021 6,700,000 2022 24,500,000 16,800,000 2023 Using percentage of completion method, compute for the following: 1. Realized gross profit in 2021 2. CIP, net of progress billings as of 2022 3. Revenue earned in 2023
- On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?ZEN Ltd signs a contract on 30 June 2019, agreeing to build a bridge for XYN at a contract price of $20 million. XYN will be in control of the asset throughout the construction process. ZEN estimates that construction costs will be as follows:Year Ending Cost30th June 2020 $ 5,000,00030th June 2021 $ 8,000,00030th June 2022 $ 3,000,000Total $16,000,000The contract provides that XYN will make payments on 30 June of each year as follows:2020 $ 4,000,0002021 $ 10,000,0002022 $ 6,000,000Total $20,000,000The contract is completed as expected on 30 June 2022. Assume that actual costs and cash collections with expectations and that cost (an input measure) is used as the basis for assessing progress on the car contract.Required:(a) Calculate the income and gross profit recognised each year 2020, 2021, 2022.(b) Prepare the journal entries for the year ended 30th June 2020Carr Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,900. The freight and installation costs for the equipment are $515. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Carr can lease the equipment from a domestic supplier for $1,750 per year for four years, with no additional costs. Required: A. Prepare a differential analysis dated August 4 to determine whether Carr should lease (Alternative 1) or purchase (Alternative 2) the equipment. Refer to the lists of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. For those boxes in which you must enter subtracted or negative numbers use a minus sign. If there is no amount or an amount is zero, enter "0". A colon (:) will automatically appear if required. (Hint: This is a “lease or buy” decision, which must be analyzed from the…
- The Olsen Company has decided to acquire a new truck. One alternative is to lease the truck on a four-year contract for a lease payment of $10,000 per year, with payments to be made at the beginning of each year. The lease would include maintenance. Alternatively, Olsen could purchase the truck outright for $40,000, financing with a bank loan for the net purchase price, amortised over a four-year period at an interest rate of 10 percent per year, payments to be made at the end of each year. Under the borrow-to-purchase arrangement, Olsen would have to maintain the truck at a cost of $1,000 per year, payable at year-end. The truck falls into the MACRS 3-year class. It has a salvage value of $10,000, which is the expected market value after four years, at which time Olsen plans to replace the truck irrespective of whether it leases or buys. Olsen has a marginal tax rate of 40 percent. Should the truck be leased or purchased? Provide your decision based on NPV analysis.Oregon Machinery Company (OMC) has decided to acquire a screw machine. One alternative is to lease the machine on a three-year contract for a lease payment of $22,000 per year with payments to be made at the beginning of each year. The lease would include maintenance. The second alternative is to purchase the machine outright for $97,000, financing the investment with a bank loan for the net purchase price and amortizing the loan over a three-year period at an interest rate of 12% per year (annual payment = $40, 386). Under the borrow-to-purchase arrangement, the company would have to maintain the machine at an annual cost of $6,000, payable at year-end. The machine falls into the seven-year MACRS classification, and it has a salvage value of $45,000, which is the expected market value at the end of year 3. After three years, the company plans to replace the machine regardless of whether it leases or buys. The tax rate is 40%, and the MARR is 15%.(a) What is OMC's PW cost of…Gilroy Corporation is considering new equipment. The equipment can be purchased from an overseas supplier for $3,140. The freight and installation costs for the equipment are $660. If purchased, annual repairs and maintenance are estimated to be $410 per year over the four-year useful life of the equipment. Alternatively, Gilroy can lease the equipment from a domestic supplier for $1,540 per year for four years, with no additional costs. Prepare a differential analysis dated December 11 to determine whether Gilroy should lease (Alternative 1) or purchase (Alternative 2) the equipment. (Hint: This is a lease-or-buy decision, which must be analyzed from the perspective of the equipment user, as opposed to the equipment owner.) If an amount is zero, enter "0". Differential Analysis Lease Machine (Alt. 1) or Buy Machine (Alt. 2) December 11 Lease Machine(Alternative 1) Buy Machine(Alternative 2) Differential Effecton Income(Alternative 2) Revenues $0 $0 $0 Costs:…